“Most things fail,” the influential and opinionated angel investor said on stage.

“The primary reason most startups fail is lack of customer acquisition at reasonable economics,” McClure continued. “There are a lot of other reasons. You might be stupid or foolish or might be unable to lead or hire or not wake up early enough, but it is likely if you are not an idiot, you will be able to get a product out the door.

“For most of the startups in the room, you are going to fucking fail.”

McClure said these words of profane wisdom in a presentation titled “Why Incubators Hate Your Startup” during Startup Grind, a conference for entrepreneurs. The word “hate” should have signaled that the talk wouldn’t be all sunshine and roses, but McClure drove home his oft-repeated point that it’s a far better thing to groom ugly ducklings than farm black swans.

McClure is known for being an iconoclastic figure even in a community filled with iconoclasts. His investment strategy is to make a large number of small investments, both inside and outside of his incubator program. He is also “bullish” on developing markets in Asia and Latin America, and today the 10 startups participating in the Mexico City accelerator program are presenting in Mountain View.

These are rather unusual words from a mentor figure, but perhaps it is a needed dose of reality. The fact is that many startups do fail, some yield small returns, and a few succeed. For 500 Startups, McClure cites these as Wildfire, which Google acquired for $350M in 2012, and TaskRabbit, which is valued at more than $100 million. Despite these odds, the wins are big wins, and McClure said that the Wildfire exit provided a 15X return that essentially paid for an entire 500 Startups class.

Which brings us to tomorrow’s demo day.

Just down the road in Mountain View, the 33 companies that participated in this fifth incubator batch will present to a room filled with investors (and a few journalists). The class is diverse, with over 57 percent based outside of the U.S. and around one-fifth containing a female founder. McClure anticipates that one-third of these companies will raise a million or more, one-third will raise $500,000 or more, and one-third will raise 250,000 or less. He said one company has already quit, and a couple “probably won’t raise enough capital to stay open much longer.”

The valuations will mostly price around $5 or $6 million, and the startups will have enough runway to operate for the next six to 18 months until the next milestone. McClure advises his portfolio companies to raise 50 percent more capital than they need and advises against raising as much money as possible as a “badge of honor.”

When pitching McClure, the first step is prove that you aren’t “fucking stupid or crazy.” From there, entrepreneurs need to display a functional product that was built with the consumer in mind.

“A lot of venture capital filtering is risk reduction through network,” he said. “A lot of people will start to pitch me and ask why they need to go through a network? I can’t identify in 30 seconds if you are fucking crazy or an idiot or something else, not that I am not.”

On Jan. 31, the incubator began accepting applications for its 2013 spring batch, requiring companies to apply via AngelList. McClure told the audience at Startup Grind that he is “materially involved in AngelList” and that all entrepreneurs, whether they are raising money or not, should have a profile in the network. 500 Startups first experimented with AngelList applications for its last batch of companies, and the partners were so impressed with the results that they made it the new standard.

500 Startups has invested in about 400 startups in the past three years, and McClure anticipates reaching the “500″ goal in the next year or two. Stay tuned tomorrow for live coverage from the demo day in Mountain View.

After revealing his motivation, Patel proceeded to reveal the methods behind his madness — the metrics he measures that have driven KISSmetrics to 100 percent year-over-year growth. Patel says every entrepreneur needs to track 10 specific areas of metrics:

1. People, not unique visitors
   UVs are not a valid measurement of activity. Customers might visit your site from multiple browsers on their laptop, plus a tablet or a mobile phone. In Google Analytics, they all look unique … so you need to start tracking people: log-ins, credentials, and usernames.
2. Time to buy
   Some people need time before they buy, says Patel. Give them that time, but be looking at marketing attribution — the first entry source, all the referrers in-between, and especially the last one before they buy. KISSmetrics tire-kickers need seven touches — blog, website, Twitter, Facebook, ads, and so on — before they convert to customers. You will find some interesting things, Patel said. Originally, the KISSmetrics team thought that Twitter didn’t convert. On a closer look, they say that there was no conversion if they viewed the data episodically, but customers did convert over time. Better tracking also enables better assessment of marketing ROI … now you really know the process that people take before buying.And one more tip: retargeting is important. Patel related an example of a mattress he was interested in buying that was $1,000, then $800, then $700 as he continued to occasionally click on the ad and became more and more likely to buy.
3. Targeted feedback from ideal customers
   Getting feedback from all the people who visit your website is useless, says Patel. Instead, ask the people who are your ideal customers … the insights will be much more valuable. Exit surveys are one of the tools KISSmetrics uses for this purpose.
4. Engagement level
   When Patel analyzed site engagement by traffic source, he saw that people from Twitter were spending almost two minutes on site, and that people who arrived at the website from a search engine using the keyword “heat map” were engaging much more than others. That enabled KISSmetrics to focus on those visitors who were already engaging the most.
5. Site and app events
   Tracking events is critical to knowing what part of your application users are actually using. For example, by adding event tracking to basically everything on the site, Patel determined that the addition of live chat on the site — talk to a sales rep — killed conversion. If something in your app or site is not being used, strip it away, Patel says. It’s extra, clutter, and distraction.
6. Real conversion rate
   Conversion doesn’t end when someone signs up. Free users can convert into paid users, so you need to track where free users originally came from, says Patel, and maintain that tracking over time. For one of KISSmetrics’ client, Bing and Google converted the same in terms of free trial users. But people who came in from Bing were almost five times more likely to enter their credit cards and buy the product. Knowing that helped the client focus their marketing efforts. Patel likes to track not just where customers came from but also what they did before converting — and then look for patterns.
7. Cancellations
   It’s easier to keep existing customers than get new ones, Patel says. That’s not rocket science, but knowing in detail what’s happening with cancellations and why is critical to growth. “You may have this big leaky bucket that everything is draining out of,” says Patel. “So stop filling it and start fixing the bucket.” For KISSmetrics, the number one reason people canceled was price, so Patel made cancelers an offer right during the cancellation process. The one-time offer, which gave exiting users the next 12 months at 40 percent off, achieved a 10 percent conversion rate.If users still don’t take that offer, KISSmetrics automatically allows them to ”name your own price.” If that number fit within predetermined levels, the company instantly accepted it.

   “If you can reduce churn, you’re going to be making a lot more money,” says Patel.

8. Lifetime value of the customer
   It’s OK to lose money in the short run, according to Patel, as long as you make it up in the long run. Which is why weight-loss companies offer all those money-back guarantees.
9. Cohort analysis
   Numbers on a user graph that are going up and to the right are fine, but they can often mask problems as new users join a growing service, says Patel. Entrepreneurs have to check user cohorts, or segments, to see how they are doing. For example: all the users who joined in August 2011 … where are they six months later? A year later?
10. User segments
    Don’t treat all your customers the same. Some are free, some paid, some are long-term, and some short-term. Then use marketing automation with Hubspot or Marketo to communicate appropriately to those different user groups.

When you track, Patel says, odd things jump out of the data that can make you much more profitable. One final example: Cutting the KISSmetrics demo time in half doubled conversions … probably due to more perceived urgency in customer’s minds.

Which is precisely how metrics can make you money.

Image credit: John Koetsier

Customer-data analytics service KISSmetrics has unveiled a new feature called Database Sync, which combs through old data to provide insights.

Nearly every company these days uses some form of analytics tool to figure out if its business decisions are working. While Google Analytics and Adobe’s Omniture dominate this space, they are limited by the timeline of data they can analyze. When you sign up for Google Analytics or Omniture, both services begin gathering insights on all current and future information. However, neither can pull in past data for evaluation. KISSmetrics hopes to fill that gap with Database Sync, which pulls in all of the information from a company’s entire database to find trends.

KISSmetrics focuses on customer acquisition data and can track how a customer interacts with a website. For example, say you’ve signed up at Fab.com and the online retailer is using KISSmetrics. The service could track how often you visited the website, how much time you spent browsing all those hipster wares, and how many days or weeks it took before you bought a scarf on the site.

With Database Sync, you don’t need to install any new codes to connect your database with its system, Neil Patel, co-founder of KISSmetrics told VentureBeat. Any and all historical data can be pulled into KISSmetrics’ system, from day one of the company starting its business to the present, he said. Right now only MySQL databases are supported.

KISSmetrics competes with Mixpanel, which provides similar customer analytics services.

KISSmetrics was founded in 2008 and is based in Cerritos, Calif. in the Los Angeles area.

Businessman with analytics image via Shutterstock

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Mintigo describes finding sales leads not as a needle in a hay stack, but rather a needle in a needle stack. There are so many potential customers out there and many of them seem as worthy of a pitch as any. Enter Mintigo’s Customer Code makeup.

Each company has what Mintigo calls a “customer code,” or a make up of traits that form a company’s customer type. Once Mintigo “cracks the code,” the company targets a specific demographic based on your business model, product or service, and industry for potential leads. In essence, it combs through this subset of potential leads and tries to match your code with their codes. Once it has found a match, it sends it to you.

Lead generation has been around since people have exchanged of goods. There are a multitude of companies analyzing sales data, all attempting to make the best formula for saving time wasted cold calling. Companies such as Eloqua all have recipes for using existing contacts to find new ones. But Mintigo is seeing some traction and has been nominated for Microsoft’s BizSpark One program.

Mintigo was founded in 2009 and is located in the US, Spain and Israel. Other investors in this round included Giza Venture Capital and private investors. The company has over 25 employees and plans to use the funding toward expanding its US product.

Raising a pile of cash is a huge blessing for entrepreneurs.  But it can also be a serious curse.

When entrepreneurs suddenly have a wealth of capital to grow their business, the decisions about how to invest that capital become difficult.  As an entrepreneur, it’s often hard to know whether you’re building value or just burning cash with your “investments.”  The line between burning and building becomes blurry because the success of those investments plays out over many months or years.  In the meantime, you’ve got to hit numbers and keep your investors happy.

A very interesting place where this burn vs. build dichotomy plays out is in the fast-growth, land-grab mode of customer acquisition.

VCs invest because the company has fast-growth potential.  In hot markets and a hot economy, the game accelerates and investors want to scoop up customers as fast as possible.  And, of course, management wants to grow, too.  But frequently, aggressive growth brings fulfillment problems and a host of management nightmares.  All too often, the result of aggressive customer acquisition is a cash bonfire.

So, how should management teams and investors work together to appropriately push aggressive customer growth and ensure they’re using that precious capital to build value instead of burn capital? Keep these three things in mind:

Focus on the numbers – Great management teams run the business by the numbers.  When it comes to decisions around customer acquisition investments, three numbers are critical: 1) Customer Acquisition Cost (CAC); 2) Churn; and 3) Lifetime Customer Value (LCV).  The entrepreneur and her management team must establish these critical metrics.  Ultimately, LCV should be measured as a multiple of the CAC.  The higher the multiple, the healthier the business and the more aggressively the company can invest in customer acquisition.

Know the acceptable numbers – It took me a while to realize how important it is that my investors and I are on the same page with respect to the appropriate LCV/CAC ratio.  The acceptable rate will vary by industry, but the board must come to an agreement on the targets and appropriateness of CAC, churn, LCV and the LCV/CAC ratio.  Doing so gives the management team the direction it needs and deserves.

Adjust for market conditions – This is where it gets fun.  The “acceptable numbers” always seem to be a moving target, depending on competition, availability of capital, company stage, etc.  I’m always amazed at how fluidly the market conditions change.  Sometimes a 2x LCV/CAC ratio is great; other times a 5x multiple is the target.  What’s important here is that the board and management agree what the acceptable numbers are and they are adjusting as necessary to help the company execute its strategy.

When entrepreneurs and their investors approach customer acquisition from this perspective, it becomes much easier to determine whether the company is burning or building.  At a minimum, the entrepreneurs and investors can approach their customer acquisition investment with eyes wide open, which improves communication at the board level and provides a big benefit to the management team that’s out executing to the board’s direction.

Workface, which provides an online service that helps companies interact with their customers with text- and video-chat services, is launching today at the DEMO Spring 2011 conference.

Workface gives employees at a company additional ways to interact with their customers. The software adds a toolbar to websites that shows how many sales associates are available and lets customers interact with them directly by chatting with them or viewing profiles. The software also gives companies some analytical tools to figure out which strategies for interacting with customers are working.

The company also has mobile-chat applications that lets employees chat with potential customers through a mobile device. The application is available for Apple devices and phones running on BlackBerry and Android mobile operating systems. Sales associates can also start video chats from their mobile devices if they have a front-facing camera, similar to Apple’s consumer-oriented FaceTime application.

Customer support for the service is hands-off as well, since the service is run on remote servers — or cloud-based servers. The software costs $25 per user per month, and any technical woes are handled by Workface. So companies interested in the software don’t have to hire additional IT professionals to handle any software woes that crop up.

Workface has raised $1.9 million to date from the founders, angel investors and Arthur Ventures. The Minneapolis, Minn.-based company was founded in 2007 and has 5 full-time employees, as well as some contract workers. The company is led by Leif Larson, a graduate of the University of Wisconsin’s business school. He was formerly the CEO of Kiosk.